Focus Financial Gets Another Recap from More Private Equity Firms

Private equity firms Kohlberg Kravis Roberts & Co. and Stone Point Capital LLC have taken a majority stake in aggregator firm Focus Financial, New York-based Focus said on Tuesday.

The deal, which follows reports last summer that Focus had filed a confidential crowd-funded initial public offering, values the ten-year-old advisory firm “rollup” company at $2 billion, according to the announcement.

Although Focus did not disclose deal terms, it said that some of its earlier backers, including Centerbridge Partners, Summit Partners, Polaris Partners and some wealth management affiliates and employees, are selling their stakes.

Firms such as Focus and HighTower Advisors were founded just before the financial crisis on the theory that independent financial planning and retail advisory firms would thrive and that brokers and independent advisers who joined under their umbrellas would cash out through a public offering. Instead, some smaller companies have folded or combined, while founders have dipped back into the venture capital/PE well repeatedly to bail out old investors and continue in business.

Focus’ senior management, including chief executive and founder Rudy Adolf, will remain significant shareholders and keep their positions at the firm, according to the release.

“All these private equity firms have a shot clock associated with them and the shot clock is usually five to seven years,” said Jeff Spears, founder of a recently shuttered aggregator firm, Sanctuary Wealth Services, in San Francisco. “The people who were involved in the last deal know they’re coming up on the end of the shot clock and they’re just passing the ball to someone else.”

A spokeswoman said she could not immediately comment on how Focus’s 45 partner firms, which give much of their annual cashflow to the parent in return for their original cash and/or equity contributions, would fare under the recapitalization.

Focus and HighTower Advisors, founded in 2008, have drawn headlines because of their early success in luring some thriving registered investment advisers and wirehouse brokers to their organizations.

Spears suspects that Focus’s IPO filing was aimed at salving the anxieties of current advisors and attracting new ones.

“There are a lot of firms not in our industry who have filed for IPOs and then mysteriously sell before they go out on the road,” he said.